As Bitcoin continues to break all boundaries, at least in local chart activity, Bradley Keoun and Omkar Godbole at Coindesk are pointing to one of the main reasons that the average trader may be enticed towards this digital asset.
The word is inflation – and it’s highly subjective in some ways, difficult to diagnose in economies, and dependent on a lot of environmental factors.
Uncharacteristically, the premise of the article here seems confusing.
The authors start out noting that consumers are worried about inflation, then seek to banish thoughts of short-term inflation by showing how some types of prices are cratering.
“Consumer expectations for inflation over the next year have now jumped to 5.3%, their highest since October 2014, and up from 4.5% a month earlier, according to Ian Shepherdson, chief economist at the forecasting firm Pantheon Macroeconomics,” they write. “These numbers are so far off the current inflation rate, as measured by the Labor Department’s consumer price index, that it’s hard to take them too seriously. They’re also contrary to the recent trend, which shows prices falling, not rising, in response to the deflationary forces of an economic contraction.”
What’s unwritten here is that prices are not cratering in a market unimpeded by necessity – they’re cratering because of coronavirus, while everyone’s indoors.
So wage stagnation and the consumer price index and any other numbers that people can drag out do not have the same meaning during the coronavirus era.
However, all that becomes moot when Keoun and Godbole next suggest that indeed, inflation is coming over the longer-term.
Everyone can agree on that, mostly. If traders are gravitating toward Bitcoin because of inflation, they would probably agree that there is a relatively unset time horizon for that. The underlying assumption, though, is that injecting billions of dollars of new money into the economy will eventually cause inflation, and that seems to be a point that’s really not in contention here.
Now usefully, Keoun and Godbole also show how Bitcoin broke a bunch of barriers to reach its current value around $8300.
“At press time, the cryptocurrency is hovering near $8,120, representing a 4.5% gain on the day,” they write. “Prices have notably crossed the widely-tracked 200-day average, bolstering the short-term bullish setup. … the area around $7,972 was packed with multiple technical resistances. For instance, the 100-day average was located at that level, while the 61.8 percent Fibonacci retracement of the drop from $10,500 to $3,867 was seen at $7,960. Further, the trendline falling from Feb. 13 and Feb. 18 highs was around $7,965.
Then there’s the takeaway:
“A convincing move above a major resistance cluster often invites stronger chart-driven buying, so Bitcoin could continue to gain altitude ahead of the reward halving.”
The bottom line is that these writers are not telling us not to watch out for inflation – and we should be watching out for inflation as a natural reaction to monetary injections. In which case, if you’re holding Bitcoin, you should probably hold it for a while, rather than trying to speculate on the short term- but even if you bought it a few weeks ago at $4000 you’ve already doubled your money.
